Are you a hardware-centric company with a heavy focus on procurement? If so, you know that managing and tracking purchases can be a tedious and time-consuming task. Enter the purchasing card, or P card for short. This type of payment method allows employees to make purchases quickly and easily, without going through the formal purchasing or accounts payable processes.
With P cards, purchases are immediately recorded, and the need for invoices and paper receipts is eliminated. Plus, P cards can help your company save money on transaction costs. However, there are some potential downsides to using P cards, such as the risk of misuse or fraud.
In this blog post, we'll explore the pros and cons of P cards and provide some best practices for using them effectively. Whether you're already using P cards or considering implementing them, this post will help you streamline your procurement process and save time and money in the long run.
What is a Purchasing Card?
A purchasing card is a type of payment method that aims to make payments within a company easier. It archives this by allowing workers to spend at work without going through the hurdles of formal purchasing or accounts payable processes.
Also known as purchase cards, P cards or procurement cards, purchasing cards let employees track purchases, make purchases quickly and immediately record any spending on expense reports.
P cards, therefore, simplify procurement by effectively handling smaller company payments. Each of the cardholders is also easy to track, solving the age-old issue of giving out too many credit cards. This is mainly because they do not always need to be given to specific employees. But let’s not get ahead of ourselves: how exactly do procurement cards work?
How Do P Cards Work?
Every time a p card purchase is made, the purchase is charged to the purchase card. Each of these purchases is then immediately recorded. The procurement card eliminates the need for lengthy request and approval processes as well. The purchasing card is similar to a credit card, apart from a few other differences like the fact that it has a spending limit.
Is a P Card Similar to a Virtual Card or a Credit Card?
To fully understand the p card meaning, we should contrast it with more familiar company cards. Let’s compare procurement cards with virtual cards and corporate credit cards.
How to Distinguish Procurement Cards from Credit Cards?
Purchasing cards are usually quite similar to credit cards. Sometimes, they even look the same. However, the main difference is that procurement cards are charge cards. Being a charge card means that all the balance must be paid by the end of the month or current billing cycle. Credit cards allow you to carry balances into subsequent billing cycles, but this can often create bookkeeping issues.
How to Distinguish Procurement Cards from Virtual Cards?
Virtual cards are temporary digital cards that conceal the account number of a physical card. They offer extra security for every purchase. They can often be given to approved vendors for specific dollar amounts. They are processed in the same way as credit cards. Therefore, you can have a procurement card and process it as a virtual card if needed.
Why Should You Consider Using a P Card?
We have hinted at several advantages already. But why should these benefits encourage you to adopt an entirely new payment method? What else do procurement cards have to offer?
They Make Corporate Spending Faster
Purchase orders, although helpful, make the purchase process tedious and long. Purchase cards bypass the lengthy approval process and prevent companies from keeping suppliers waiting. They do this by allowing chief financial officers to control what is bought and how much can be spent, all by customizing the purchase card.
Fewer Invoices From Suppliers
Invoices can be bothersome sources of error at the end of the billing cycle. Procurement cards eliminate the need for invoices because any spending is recorded and confirmed on the spot. P cards also help eradicate paper receipts, which can be as troublesome as invoices.
Provide Greater Accountability
P cards help companies limit spending, track purchases and record transactions instantly. Each p card is assigned to employees whose names are registered by the company. Since balances are also paid in the current billing cycle, purchase cards help companies avoid bookkeeping issues.
Help Save Money On Transaction Costs
Purchase cards can help your company save up to $63 on average with every transaction. This has inspired some companies to use purchase cards even for high-volume transactions. They can even replace checks and thus avoid the waiting period involved.
What are the Cons of Using a P Card?
The most common issue when it comes to procurement cards is misuse. Since it is a novel approach, many companies may end up not training their cardholders efficiently. They may also adopt a p card program that is inappropriate for their company's needs.
The second biggest issue with corporate purchasing cards is one that cuts across all kinds of company cards: fraud. As with any fintech that involves several actors, there are bound to be people with less than legal ideas. If not implemented properly, they could easily become a weak point.
However, there are some measures the chief financial officer can take to avoid these issues.
P Card Best Practices
How can we get the best out of our purchasing cards?
Understand Your Purchasing Card Program
The most important first step is understanding your purchasing card program. Consult your p card provider about what features would best suit your company, and have them walk you through the process. Notify all your approved vendors and suppliers of any compliance you may need from them and negotiate terms. Once you feel confident about incorporating p cards, make plans to educate your staff.
Customize Purchase Card Features
Purchase cards allow you to customize every feature. You can determine how much is spent by each employee, who is responsible for doing purchase approvals and even how long each cardholder is allowed to own their card.
Setting the spending limit is the most important feature to customize because it directly allows you to align spending with long-term budget goals. This is a great improvement from credit cards which are often exposed to being overdrawn.
Procurement cards even allow you to prohibit the purchase of certain goods. You can also restrict them whenever employees are on official leave.
Accept Offers With Built-In Approval Flows
Traditional approval processes are not without their merits. They ensure accountability. Built-in approval flows help you achieve the same thing. You do this by including administration or finance team approvals as part of the payment process.
This would take the form of automatic notifications to chief financial officers whenever a p card purchase is going to be made. Once a notification is received, the manager will see whether they can approve it before the item is purchased. To make the manager's work easier, these notifications can have a filter that only lets them see purchases above a certain price or purchases of certain items. The notification system could also be customized and automated.
Individually Named Cards
Purchasing cards are more secure than any other payment card. Therefore, you do not need to be worried about giving them out to individuals. Having cards under particular employees will help you track purchases even better because you always know who is spending on what.
P card programs allowing you to assign cards to specific individuals means you need to be careful about who you choose. So have the right people in relevant positions get vetted as cardholders.
Corporate Purchasing Cards: Taking the Small Things Out of Your Hands
Procurement can become a second job. Unfortunately, it’s a task you cannot do without, nor fully automate. You need to find sustainable ways of dealing with invoices, spending, suppliers and all the risks involved when handling money. Purchasing cards help you achieve this.
Take the dealings of small company purchases out of your hands. With purchasing cards, the procurement process becomes less of a headache and you can focus on more involved tasks without interruption. Find a suitable p card program that works for your company and enjoy a streamlined, peaceful procurement process.
Purchasing cards, or P cards, are a payment method that aims to simplify the procurement process within companies. For hardware-centric, procurement-heavy startups, managing purchases can be a tedious and time-consuming task, but P cards allow employees to make purchases quickly and easily, without going through the formal purchasing or accounts payable processes. With P cards, purchases are immediately recorded, and the need for invoices and paper receipts is eliminated. This streamlines the procurement process, saves time, and can even help companies save money on transaction costs.
P cards are similar to credit cards but have some differences, such as being charge cards that require all balances to be paid by the end of the month or current billing cycle. They also allow for customization of features, such as setting spending limits for each employee, restricting purchases of certain goods, and including built-in approval flows to ensure accountability.
There are many benefits to using P cards, including faster corporate spending, fewer invoices from suppliers, greater accountability, and savings on transaction costs. However, there are also potential downsides, such as the risk of misuse or fraud, which companies must take measures to avoid.
To use P cards effectively, companies should understand their purchasing card program, customize purchase card features, accept offers with built-in approval flows, and assign individually named cards. By taking advantage of these best practices, startups can take the dealings of small company purchases out of their hands, streamline the procurement process, and focus on more important tasks without interruption.
In summary, P cards are a valuable payment method for hardware-centric, procurement-heavy startups that can save time and money by streamlining the procurement process. By understanding P card best practices and taking measures to avoid potential downsides, companies can achieve greater efficiency and accountability in their procurement process.